Procurement is the act of attaining goods and services from vendors and involves all the functions that serve in obtaining the final product. It is a complex process that involves negotiations, long-term relations, contracts, and so on. A methodical procurement plan for any company will work towards maximizing the organizations’ profit.
Procurement is a fairly common process that is known to many in the business world. To a layman, procurement would sound like purchasing, but to a business person, the difference is clear. Procurement is an end-to-end process that needs to be done according to a well-planned strategy.
What are the stages of procurement?
Every organization might have a different manner and method to implement its procurement policies. There are, however, some stages that every company should think of following in-order to attain favorable deals for their products or services. These are the stages in procurement:
- Identification: The first step in this long process is to identify the needs of the company and the materials or work that would be required to realize these goals. This is a managerial step and a process that would ease the entire process and cut off redundancy or confusion.
- Creating a purchase requisition: This is the official start of the procurement process when the purchase request is placed for the supplies. This can be done with ease online, via paper, phone, or in-person.
- Requisition Review: The purchase request is sent to the accounting team or managers in procurement for approval and last-minute checks. A budget check is then requested according to which final approval is given.
- Selection and Vetting of Vendor: You must carefully select your vendor and preferably think long-term investments. You’ll be leaving them in charge of supplies, their delivery, quality, prices, and other special needs or instructions. This is why you must carefully assess and choose your vendors with care.
- Negotiate terms and finalize contract: to maximize profits for your company, you need an excellent negotiation plan. If you do it right, you can attain great discounts and deals for products of good quality. A contract stating terms and conditions and liability clauses need to be signed by both parties for maximum safety of individual and company with the minimum legal hassle.
- Receive and review the purchase: Receive your materials or services and check for quality and satisfaction levels. Make sure to return any damaged goods and claim for refunds but make sure it doesn’t interfere in your relationship with the vendor.
- Three-way matching process: For accurate and complete payment, vendor invoices are processed through three-way matching. Three important documents are cross-referred- purchase orders, order receipts, and invoices, in order to highlight inaccuracies or disturbances in them.
Let’s better understand what these documents are:
- Purchase orders: These are official confirmations given to a placed order. The purchaser sends this to a vendor to authorize the purchase. They include company name, description, and quantity of goods, prices, payment information, address, and order number.
- Order receipt: This is a document that shows proof of payment and delivery. The vendor includes this with the delivered products generally and entails the contents of the order with prices.
- Invoices: An invoice is a document the vendor sends the buyer requesting payment. They include similar information as the two documents above, with the vendor’s information, credits or discounts, and total amount due for the order.
- Approve the invoices: After checking if everything is complete and correct, you approve the vendor’s invoice and initiate payment for the purchase. After this process, you will update the records of your payments for all the items of purchase so it is easier to account for.
Procurement is highly important for a company to do well as it directly affects your organization’s gains. Following these steps will ensure that your procurement plan is solid and will ensure that you attain maximum profits with goods that are worth their value and your money.